Canadian Pacific Says Weather, KCS Merger Affected Q4 Results

Canadian Pacific train
Don MacKinnon/Bloomberg News

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Severe winter weather along part of its network and increased costs with the proposed merger of Canadian Pacific Railway with Kansas City Southern impacted fourth-quarter financial results.

CP announced Jan. 27 that quarterly net income fell to C$683 million, or C74 cents a share, a decline of 45% from C$997 million, C$1.19, in the same period the year before. Revenue increased 1.5% to C$2.04 billion when measured against 2020’s C$2.01 billion.

For the year, net income increased to C$2.85 billion, or $C4.21, from 2020’s C$2.44 billion, or C$3.61. Revenue moved upward 3.6% to C$7.99 billion from C$7.71 billion a year ago.

CP’s operating ratio worsened to 59.2 from 53.9 a year ago. The operating ratio in the fourth quarter includes C$36 million in costs related to the Kansas City Southern acquisition. For the full year the railroad’s operating ratio also declined to 59.9 from 57.1 in 2020.

Operating ratio measures a company’s expenses as a percentage of revenue and determines efficiency. The lower the ratio, the more ability the company has to make a profit.

“Railroading is an outdoor sport, it was a miraculous effort to get the railroad open again in eight days,” CP CEO Keith Creel said of the challenging weather the railroad faced in late November and December. British Columbia experienced record flooding on the Fraser River and many of its tributaries overflowed rapidly, causing extensive damage, and disrupted service between Kamloops, British Columbia, and Vancouver.

CP-Q42021 by Transport Topics

CP said it moved hundreds of employees and contractors along with 80 pieces of heavy equipment from across the network as part of its recovery efforts to repair tracks. “I am tremendously proud of the resilience the CP team demonstrated to deliver these results.”

In the fourth quarter Calgary-based CP moved a major step closer to acquiring the smaller, but strategically important Kansas City Southern, the only rail line that operates in northern and southern states and deep into Mexico.

CP and rival Canadian National Railway fought an often bitter, high-profile, multibillion-dollar battle in 2021 for the control of KCS, when the U.S. Surface Transportation Board rejected on a bipartisan 5-0 vote CN’s plan to create a “voting trust” to operate KCS during the merger process. The STB said in its decision that a CN-KCS merger would not create additional competition and would consolidate too many routes, in too much of the country under the control of one mega-railroad.

However, a similar “voting trust” was approved for the merger of the two smaller railroads, CP and KCS.

“This quarter we also reached a crucial milestone in our journey to create the first single-line rail network linking the U.S., Mexico and Canada by combining with Kansas City Southern, which closed into voting trust Dec. 14,” Creel said.

In the fourth quarter, across the nine sectors that CP moves, freight volume was up in five, down in three and even in one.

  • Metals, minerals and consumer products climbed by 25% to C$193 million from C$155 million.
  • Energy, chemicals and plastics climbed 13% to C$414 million from C$366 million.
  • Intermodal freight increased by 8% to C$444 million from C$410 million.
  • Forest products moved upward 6% to C$89 million from C$84 million.
  • Potash had a 12% increase to C$115 million from C$103 million.
  • Fertilizers and sulfur remained flat at C$78 million.
  • Coal declined 14% to C$134 million from C$155 million.
  • Grain dropped 13% year-over-year to C$440 million from C$508 million.
  • Automotive shipments dipped by 20% to C$87 million from C$109 million.

The railroad’s CEO said he believes CP finished the year strong and he believes 2022 will be a year of growth, especially with the proposed merger with KCS working its way through the regulatory process, now a little less than a year since it was first publicly proposed.

“During a historic year for CP, our dedicated team confronted the adversity we faced throughout 2021 head-on with grit and tenacity,” Creel said. “I am excited for what lies ahead with this franchise as we move past the uncertainty and extensive supply chain disruptions created by the COVID-19 pandemic. The demand environment and overall economic strength, combined with CP’s unique initiatives and service excellence, have us well-positioned to drive profitable growth for our customers, employees and shareholders. These factors, coupled with the progression of our proposed combination with Kansas City Southern, position CP for another history-making year.”

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